[SiliconBeach] Startup friendly business incorporation

[Joshua Partogi]

Dear all,

What is the procedure to run a startup in Australia? Is only having an
ABN good enough? And what is the startup friendly incorporation in
Australia? In the US, LLC is considered as an option for startup. Is
there anything like LLC in Australia?

Thank you very much in advance for your assistance.

Kind regards,
Joshua

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[Bart Jellema]

I think an ABN will get you started, but if you start with multiple founders
or need limited liability I'd go for a Pty Ltd. Cost to register it with
ASIC is about $400 and we didn't use a lawyer when we did it. The form is
quite simple. Is it just you or do you have co-founders?

[Joshua Partogi]

Hi Bart,

Thank you for the explanation and the insights. It is really helpful
to get me started. Yes it will only be me at the time being. Do I
still need to apply for a Pty. Ltd? It the $400 a one time payment?


Kind regards,
Joshua

On May 11, 1:06 pm, "Bart Jellema" <bart.jell...@tjoos.com> wrote:
> I think an ABN will get you started, but if you start with multiple founders
> or need limited liability I'd go for a Pty Ltd. Cost to register it with
> ASIC is about $400 and we didn't use a lawyer when we did it. The form is
> quite simple. Is it just you or do you have co-founders?
>
> -----Original Message-----
> From: silicon-bea...@googlegroups.com
>
> [mailto:silicon-bea...@googlegroups.com] On Behalf Of Joshua
> Partogi
> Sent: Tuesday, 11 May 2010 12:41 PM
> To: silicon-bea...@googlegroups.com
> Subject: [SiliconBeach] Startup friendly business incorporation
>
> Dear all,
>
> What is the procedure to run a startup in Australia? Is only having an
> ABN good enough? And what is the startup friendly incorporation in
> Australia? In the US, LLC is considered as an option for startup. Is
> there anything like LLC in Australia?
>
> Thank you very much in advance for your assistance.
>
> Kind regards,
> Joshua
>

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[Dylan Jay]

On 11/05/2010, at 1:36 PM, Joshua Partogi wrote:

> Hi Bart,
>
> Thank you for the explanation and the insights. It is really helpful
> to get me started. Yes it will only be me at the time being. Do I
> still need to apply for a Pty. Ltd? It the $400 a one time payment?

If it's just you and you aren't likely to get sued then you can just
stay in partnership or whatever the solo equivalent of that is. We did
that for many years. Tax is more complicated with pty ltd and only
pays for itself once you reach 80kish... or at least thats what our
accountant said. Speak to one of those. They are the ones who know.

[Matt Moore]

If it's just you then get an ABN and probably register the name with
the relevant state business (Dept of Fair Trading in NSW). You don't
need to file annual accounts, you just put in revenue & losses as part
of your annual tax return. Perfect for a hobby or one person set-up.

The costs for Pty Ltd is about $550 set-up with ASIC via a 3rd party
provider, about $200 for annual renewal and then (and here's the
biggie) you'll need to submit company annual accounts - most
accountants charge $1000-2000 for this for a small company.

Some handy info here:
http://www.ato.gov.au/content/downloads/mei00178329nat72538.pdf

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[Bart Jellema]

Hi Joshua,

http://www.asic.gov.au/asic/ASIC.NSF/byHeadline/Starting%20a%20company%20or%
20business

I think there is a recurring yearly fee. We didn't register until 6 months
in. As far as I know it's the thing that's closest to an LLC, but as Dylan
said, it's probably not needed if you don't need the limited liability and
don't make much money yet. Also the company tax return was a bit too hard
for me to understand, so we needed an accountant to do that. First year
costs us about $700 I think. Anyway, this is just my experience... I
recommend you follow the steps on the ASIC site or call their help line (in
my experience most government help lines in Australia are excellent AND
free)

Cheers,

Bart

[Andrew Stewart]

+1 for partnerships/sole trader

If you do it yourself the only costs you will incur is registering
with the department of fair trading (NSW), which I think was about
$120 when I did it last year.

Out of interest are there any people on the list with knowledge of
partnerships that got caught out and sued because they were a
partnership and not a company? I have heard a few stories, but for
most of them I am not convinced that being a company rather than a
partnership would have offered any protection. As I understand it,
director's personal funds are still liable even in a registered
company. I am sure there are cases where being a registered company
would help I am just interested to know how common they are.

Cheers,

Andy

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an...@universalsprout.com

Andrew Stewart

Sydney :: +61(0)416 607 113
London :: +44(0)7900 245 789

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[Dylan Jay]

On 11/05/2010, at 3:30 PM, Andrew Stewart wrote:

> +1 for partnerships/sole trader
>
> If you do it yourself the only costs you will incur is registering
> with the department of fair trading (NSW), which I think was about
> $120 when I did it last year.
>
> Out of interest are there any people on the list with knowledge of
> partnerships that got caught out and sued because they were a
> partnership and not a company? I have heard a few stories, but for
> most of them I am not convinced that being a company rather than a
> partnership would have offered any protection. As I understand it,
> director's personal funds are still liable even in a registered
> company. I am sure there are cases where being a registered company
> would help I am just interested to know how common they are.

We were concerned about this at one point (what would happen if we
were sued, not that we were about to be sued) and talked to a lawyer.
They said that in reality you get a lot of warning that you are going
to get sued and that normally leaves a reasonable time to transfer
personal assets to someone else. Again don't take my advice on this
however. See a lawyer.

[Tim Bull]

If it's a hobby start up, you don't even need an ABN:

You only need an ABN to collect GST. You don't need to bother with
GST unless:

"If you carry on a business, you must register for GST if your GST
turnover is at, or above the GST turnover threshold, that is, it is
$75,000 or more ($150,000 or more for non-profit organisations).
You must also register for GST if you provide taxi travel as part of
your business, regardless of your GST turnover. Taxi travel means
transporting passengers by taxi or limousine for fares."
http://www.ato.gov.au/businesses/content.asp?doc=/content/20724.htm/&page=5

If you intend for this to be your livelihood and a successful
business, then don't bother with any advice here, including mine - go
and speak to an accountant! There are LOTS of good reasons for many
different and complicated structures which depend on all sorts of
things - are you just a consultant, are you building a product, how
much money do you intend to make etc. etc.

From my own experience having gone to an accountant and received very
good advice on a very complicated but Tax effective structure, I'd
recommend going to speak to the accountant then ignoring them until
you are close to a product.

You can always restructure, incorporate, change your operating model -
obviously this will come at some cost and potentially a loss of tax
effectiveness BUT if you're one of the 1 in 100 that get to the point
you need to care, it's probably a nice problem to have. If you never
get to that point, you'll be happier you didn't spend the money to put
in place a theoretical structure you practically never needed.

Cheers,

Tim

[Nathan de Vries]

On 11/05/2010, at 3:30 PM, Andrew Stewart wrote:

> As I understand it, director's personal funds are still liable even
> in a registered company.

That was the advice I was given too. i.e. a company with one director
provides no additional protection over a sole-tradership, assuming
that in both cases you have professional indemnity insurance.

It's a great example of why you should speak to a lawyer though --
almost all online advice will tell you that a company is better in
terms of liability, but that's not the whole story.


Cheers,

Nathan

[Jeromy Evans]

Hi Joshua,

Similar to Bart, my experience was:
- I walked into my local ASIC office and registered a Pty Ltd
company. $400 setup. It took about 15 mins.
- I then registered an ABN for the company online - takes about a
week. I did this because I wanted to collect GST.
- I also registered for PAYG so the company could pay my salary and
collect PAYG tax (the tax on my salary)
- I have to pay $215 annually for registration of the company (and
they severely punish me if I'm late)
- Due to the GST and PAYG registration, the company must submit
quarterly or monthly (depending on income) Business Activity
Statements (BAS) to the tax office. These are pretty easy but do mean
you need to keep proper financial records for the business.
- Depending on the state, the company must have worker's compensation
insurance for it's employees, even for the sole director/employee,
costing from about $200pa
- The company must submit a company tax return annually. I completed
it once myself (horrid!). It's designed for accountants, so an annual
account fee is necessary (about $1000pa for me).

So there's quite a bit of overhead if you want to go down the Pty Ltd
route. Still, based on a lot of legal advice and presentations I've
received, I'd recommended it if you're taking the business seriously
rather than a hobby. The benefit among others is it has a share
registry and is legally a separate entity from yourself (it can own
things, have bank accounts, get loans, issue more shares, etc). The
liability protection is for the shareholders, not the (negligent)
directors. It's about it being a separate entity/asset from yourself
and the flexibility that comes with that.

For instance, the shares in my company are not owned by me, they're
owned by a Trust. It's at the Trustee's discretion (also a company)
to decide where dividends and capital are allocated to potential
beneficiaries (eg. me, my family and related entities). This can't be
used to deliberately avoid tax, but it may be extremely effective
compared to a sole trader or partnership of humans because it provides
flexibility. This may be important if my priorities change in the
future.

Also note that most companies that you supply in Australia will expect
you to have an ABN, otherwise they're supposed to deduct "No ABN
withholding tax" from invoices at about 46.5%. If you supply mostly
consumers or international customers this doesn't matter so much.

cheers,
Jeromy Evans

[Clifford Heath]

On 11/05/2010, at 3:31 PM, Bart Jellema wrote:
> ... closest to an LLC, but as Dylan

> said, it's probably not needed if you don't need the limited
> liability and
> don't make much money yet.

If there's more than one of you, this is very poor advice.
See my post on <http://groups.google.com/group/rails-oceania>
for the reasons.

Clifford Heath.

[Clifford Heath]

On 11/05/2010, at 3:41 PM, Dylan Jay wrote:
> We were concerned about this at one point (what would happen if we
> were sued, not that we were about to be sued) and talked to a
> lawyer. They said that in reality you get a lot of warning that you
> are going to get sued and that normally leaves a reasonable time to
> transfer personal assets to someone else. Again don't take my advice
> on this however. See a lawyer.

Your lawyer was ignorant, as most are, of bankruptcy. if you go
bankrupt in
such a case, your feeble attempts to transfer assets are seen for
exactly
what they are, an attempt to evade liability. There are statutory time
limits,
some of which are rather long, and arms-length rules, and a bunch of
other
stuff. The bankruptcy act takes many decimeters of shelf space, and I
can
guarantee your lawyer hasn't read it. Neither have I, but let's just
say that
an associated party worked in the field for more than a decade...

Since this discussion is ongoing here, I'll repeat what I said
elsewhere.

If you form a P/L, you get more protection than as a partnership or sole
trader, but you also have the responsibilities of a director. One of
those is
to be aware of your responsibilities, which will likely take a week of
study
at least. In return, you get protection except from loss or damage
caused
by you being negligent or otherwise not exercising your directorial
responsibilities.

I.e. if you believed in your business plan and did all you could
reasonably be expected to to make it succeed, and yet it fails, you
don't lose your house... unless you borrowed against it or signed an
indemnity with some client... so don't do that. Purchase PI insurance
and self-fund instead.

In a partnership, all partners are equally and separately responsible
for all liabilities incurred by any of them, and it's difficult to
legally
determine what actions were taken in the partnership and which
privately, and difficult to formally disassociate, so this tying of
liabilities
can extend long after *you* thought the business has wound up. Nasty!

You might not think it's a big risk right now, but entering a
partnership
is like entering a marriage, not to be done lightly.

Short form: don't even consider entering a partnership like this. Just
incorporate.

Clifford Heath. Not a lawyer or accountant. Get your own advice.

[Joshua Partogi]

Hi Tim,

I think having an ABN would bring more confidence as some customer
don't want to buy a product from a company that is not registered. I
think I would start from small first as I don't have enough money to
hire a lawyer or an accountant yet. If an ABN is all I need to
starting a business, I think it is good enough to get me my foot on
the ground.

Thank you for your advise though. It is certainly useful for me.

Kind regards,
Joshua

On May 10, 11:01 pm, Tim Bull <tim.b...@binaryplex.com> wrote:
> If it's a hobby start up, you don't even need an ABN:
>
> You only need an ABN to collect GST.  You don't need to bother with
> GST unless:
>
> "If you carry on a business, you must register for GST if your GST
> turnover is at, or above the GST turnover threshold, that is, it is
> $75,000 or more ($150,000 or more for non-profit organisations).
> You must also register for GST if you provide taxi travel as part of
> your business, regardless of your GST turnover. Taxi travel means

> transporting passengers by taxi or limousine for fares."http://www.ato.gov.au/businesses/content.asp?doc=/content/20724.htm/&...

[Tim Bull]

I agree that an ABN would provide more confidence, just don't confuse
this with the need to have a product that consumers want.

You should be able to validate and sell the product to some initial
customers without even sinking any money into an ABN. Which then
makes it worth getting one.

Without knowing anything about your business idea, if someone says "I
won't buy from you unless you have an ABN" I'd question if you're
really meeting a need. Although we have one, in all our customer
conversations about our MVP, I can categorically state a question
about our ABN status has not come up once.

FYI - Most reputable accountants / lawyers will give you an initial
consult to discuss your requirements at no fee. They'll probably
suggest some over engineered plan that is very costly - understand WHY
they are suggesting this, then sit on this until you *really* need to
implement it.

By all means, get an ABN, just understand you don't HAVE to in order
to validate your idea which is the most critical part of the start-up
business IMO.

T

> I think having an ABN would bring more confidence as some customer
> don't want to buy a product from a company that is not registered. I
> think I would start from small first as I don't have enough money to
> hire a lawyer or an accountant yet. If an ABN is all I need to
> starting a business, I think it is good enough to get me my foot on
> the ground.

[rgh...@gmail.com]

Firstly, Australia is the easiest place in the world to start a
business.
You do not have to do anything.

There are no 'business licenses' per se but individual business type
may require registration such as builder, electrician or dentist.

There are many different legal entities which may you.

1. Yourself (sole trader)

2. Yourself with business name (sole trader but has registered with
state government.)
Advantages you can issue invoices in your businesses name eg my huge
business
It help to separate your personal money from the companys

3. Trading Trust
Normally used for farming and other property-based businesses
Helps with splitting income tax between the family

4. Partnership(s)
Can be either formal with written agreement or informal just a verbal
agreemenmt
Partnerships are a flexible legal entity but any partner can be held
viable for other partners debts.
Partnerships have unlimited liability but so does sole traders

5. Private company (Pty Ltd)
This is the best legal entity for 99% of all businesses.
Companies are eternal unless killed or die of lack of care. (failing
to return paperwork in 2 years)

Companies are cheap and easy to setup
Costs $400 and takes about 10 mins at ASIC
3rd Party charge about $150 if you do not want to fill the forms in

6. Public company (Ltd)
All companies that want to list on the stock exchange need to be a
public company
There are many advantaged but they are expensive
Minimum cost to run a public company is about $5,000 per year.

ASIC fees $1200 + audited accounts


The reality of setting up a business in Australia, it is trivial and
cheap.

1. Complete ASIC 201 form - 10 minutes
Only needs 1 Director / Secretary / Shareholder
Costs $400

Get Incorporation Certificate instantly

2. Take Incorporation Certificate to favourite bank / build society /
credit union
If you have 100 points id (drivers license / credit cards / medicare
card etc)
Setup bank account 15 mins

3. Go online to ATO
Complete GST / Income tax / PAYG (if needed) registration
It takes 25-35 mins

If you want to do online tax - you will need a CD mailed to with a
digital certificate which is about 2 weeks.

In about 1 hour you have a new company registered with bank account
and ABN for about $500 ($100 in bank account)
This is capable of doing more revenue than most people can dream.

[Daniel Purchas]

yeah when we setup our company with ASIC, the lady processing our form at the counter went through it all with me and helped me fill out some of the sections, they were pretty helpful  

--
Dan Purchas
GradConnection

044 909 7781
www.gradconnection.com.au

[Andrew Stewart]

> Firstly, Australia is the easiest place in the world to start a
> business.

Australia is awesome in many ways, but this is not the case. For
example, in the UK it is much easier to set up partnerships and sole
traders - all you have to do is call the HMRC (ATO) within your first
3 months of trading and tell them what name you are trading under, no
forms or fees of any kind even to register the name. I am pretty sure
it is also simpler and cheaper to form a company in the UK.

I am by no means saying UK is better (after all I am living here
aren't I?) but it could still be simpler to start up a business in
Australia and as a community I think we should be aware of this. I
found it very confusing here to set up a business because there was no
central website you could go to to find everything out, all the
websites I saw had caveats like "you also need to check if your
business requires special permits from the state you are in" etc.

Andy

--
an...@universalsprout.com

Andrew Stewart

Sydney :: +61(0)416 607 113
London :: +44(0)7900 245 789

www.universalsprout.com :: websites that sprout

[Nathan de Vries]

On 11/05/2010, at 4:01 PM, Tim Bull wrote:
> You only need an ABN to collect GST.

If you don't register for an ABN and provide goods or services, when
customers / clients pay your invoices they need to deduct 48.5% and
pay it to the ATO on your behalf. Good luck running a business like
that.


Cheers,

Nathan

[Tim Bull]

On May 12, 11:41 am, Nathan de Vries <nat...@atnan.com> wrote:
> On 11/05/2010, at 4:01 PM, Tim Bull wrote:
>
> > You only need an ABN to collect GST.
>
> If you don't register for an ABN and provide goods or services, when  
> customers / clients pay your invoices they need to deduct 48.5% and  
> pay it to the ATO on your behalf. Good luck running a business like  
> that.

As I've pointed out, he should get advice and understand the reasons
for all sorts of pros and cons.

My point is not that NOT having an ABN is a good idea, simply that he
doesn't need even an ABN to get close to his customers and validate a
business idea.

Clearly when he's likely to have customers an ABN is a very logical
first step.

T